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Officials consider use tax ballot issue

At Thursday’s joint town/county meeting, local officials once again grappled with the issue of instituting a use tax, discussing whether the tax would benefit local merchants, and if voters would even approve the tax in November.

When the issue of a use tax was brought before the voters in 2003, it was rejected by an almost 10-to-1 margin. However, that use tax proposal was farther reaching than the proposal being considered for the 2010 ballot and included vehicle purchases made outside the county. It also included construction materials for both commercial and residential construction, and materials used in oil and gas development.

As discussed at Thursday’s meeting, the proposed use tax would only include construction materials purchased outside of the county for residential and commercial development.

How that tax would be assessed, however, continues to be a matter of contention — one of several that clouded the issue as town council members and county commissioners considered the pros and cons of pursuing a ballot initiative.

At the top of the list of issues was the matter of timing. In an economy still sputtering, at best, some commissioners and council members doubted the success of proposing a new tax.

“In these economic times, I don’t see a tax passing,” said BoCC chair Clifford Lucero.

“I don’t think it’s going to pass,” agreed council member Don Volger.

However, council member Darrell Cotton disagreed, saying, “I don’t think it will be that hard to sell,” pointing out that if local voters were made aware that they would not (by and large) be affected by the tax and that the tax would benefit local merchants, the tax would stand a good chance of passing.

In fact, as currently proposed, the tax would only be applied to construction materials purchased outside the county, on projects requiring a building permit. Thus, the only people paying the tax would be contractors (either local or from out of the county) bringing in building materials from outside the county.

“The long-term problem remains and it’s not fair to the retailers,” Cotton said.

Time could work against Cotton, however. With less than six months to go before the November ballot and an early September deadline for placing the initiative before the voters, the window for educating voters about the nature of the tax narrows with each passing day.

For local merchants, that diminishing window of opportunity must feel frustrating. Speaking in favor of the use tax, Jim Eckhardt, general manager of Ponderosa Lumber said, “We believe there’s a serious problem ... local businesses are at a serious disadvantage,” adding that, “There are other businesses that went out of business but might have stayed in business if we’d had a use tax.”

In fact, sales representatives from Durango and La Plata County aggressively sell building packages for delivery to Pagosa contractors with the appeal of only paying 2.9 percent state sales tax, since construction materials delivered to Archuleta County are exempt from Durango or La Plata County sales tax.

Durango charges a 3-percent sales tax and La Plata county has a sales tax rate of 2 percent. Durango also has a 3-percent use tax in place.

Likewise, materials purchased in New Mexico and delivered to Archuleta County are only subject to the 2.9 percent state sales tax. However, several construction material suppliers contacted by SUN staff in New Mexico stated that deliveries to Colorado amounted to only a small percent of their sales, with most of those sales delivered to Montezuma and La Plata counties.

“We do some work in Colorado,” said Curt Mitchell, general manager of Chaparral Materials in Farmington. “Mostly in Durango, but some in Pagosa and as far north as Silverton and Telluride.”

Mitchell said that materials shipped from his store are subject to state sales tax and use taxes, when applicable. “Whatever taxes that need to be paid are taken care of,” he said.

In a phone interview, local contractor Bob Hart said that he didn’t know of a substantial amount of building material coming from New Mexico. “Almost all of it, if any, coming from out of the area is from Durango,” he said, adding that he personally didn’t know of any contractors who had materials delivered from New Mexico. Hart also said, “I get almost all of my materials locally.”

Eckhardt added that it was not just retailers who were affected by the lack of use tax, but also local contractors who can be underbid by competitors from outside the county.

“Businesses from outside this community actually use that as a selling tool,” he said, adding, “It’s also a deterrent for a business looking to relocate to this area.”

In the aggregate, Eckhardt said he believed the lack of a use tax amounted to fewer jobs in the area and less revenue for the county and town.

“I believe this is an issue that the Community Development Corporation should look at and come back with a report,” Eckhardt said. “I believe it’s an important issue.”

County commissioner and Pagosa Springs Community Development Corporation board member John Ranson didn’t agree that a use tax would pass a vote nor would be a nostrum for local merchants. Instead, Ranson proposed an alternative solution, suggesting rebates for sales tax paid on locally purchased construction materials.

“I think we need to be bold here,” Ranson said, introducing his proposal. In his presentation, Ranson pointed out that, while construction, real estate and construction-related industries had accounted for almost 37 percent of the local economy in 2007 (according to a 2009 Region 9 report), “That activity has been pretty much drying up here in Archuleta County since about 2007,” he said.

Given that decline, amounting to an annual average of about $17,000 in sales tax collections averaged yearly from 2001-2007 and down to just about $5,000 last year, Ranson suggested that the county and town would not be missing a substantial amount of revenue by rebating sales tax on locally purchased construction materials.

“What’s $5,000?” Ranson asked, “$2,500 to the town and $2,500 to the county.”

Both county and town officials agreed that the proposal warranted more consideration and both entities would revisit the issue at their next joint meeting July 22. It remains to be seen if the use tax, Ranson’s alternate proposal, or a combination of the two, will eventually become a ballot initiative this fall — or if any tax initiative will go to the voters.

While seemingly pessimistic that a tax initiative would appeal to voters in November, several officials and business owners recognized that a problem remains for local retailers of construction supplies and materials.

“There are those who would go outside the community to save that four percent or six percent,” said Volger. “It (a use tax) does more to level the playing field.”

Adding to that, Cotton said, “Those who choose not to pay the tax still choose to take advantage of services,” referring to county and town services, amenities and infrastructure paid for by sales tax.

However, it was the retailers who remained unwavering in support of a local use tax.

“We’re sending business out of town,” said Paul Day, owner of Day Lumber. “We’re giving that money to another community.”

“Whatever we do needs to be a long-term plan,” added Eckhardt.

However, it was Hart (in a later interview) who said that, whatever happens, local officials and retailers need to develop a strategy — quickly.

“The concept, I’m definitely in favor of,” Hart said. “They just need to move quickly, because time is running out. I see some real difficulty with reporting and collecting (the tax).”

Having said that, Hart said he believes that, with a good plan, the Home Builders Association (of which Hart is president) might promote a use tax.

With the county and town statutorily prohibited from promoting the tax initiative, the burden of advocacy falls to another organization. With the PSCDC limited in political advocacy due to its 501(c)(3) status, it could possibly work with the HBA and the Pagosa Springs Chamber of Commerce to pick up the mantle.

“It’s something the CDC needs to consider,” said Ranson after the meeting. “We’d need to be careful. Most of all, we’d need to be relatively certain that it would pass.”

jim@pagosasun.com